8 comments:

Along the lines that Warren proposes, formally consolidate monetary and fiscal operations under Treasury, automate the settlement system to provide liquidity as required for those having access, and then let the regulators (FDIC) decide who has access to the settlement system based on solvency.

Then we can argue over whether tsys, which are operationally unnecessary, constitute enough public purpose to justify the interest payments as subsides to savers.

I'm with you guys. These "independent" central banks in Europe and the US are strangling us.

There is no reason at all that the Treasury should have to borrow a dime from either the public or the country's own central bank to finance a deficit. We could have a system in which the Central Bank simply gives the various Treasury accounts a penalty-free overdraft facility, where the permitted annual overdraft never has to be repaid by the Treasury but simply becomes a liability of the central bank in accounting terms.

Then every year, based on macroeconomic conditions, we determine a target federal deficit for the year, with perhaps some discretionary quarterly target adjustment.

Instead of the current system, which bamboozles the public with phony, scary and meaningless "debts" of the Treasury to the government's own central bank, the reformed system would make it clear that the US government, unlike every other entity with a balance sheet in our system, can run a deficit without borrowing. It can run a "pure" deficit - just by spending more than it takes in.

Public borrowing would then be seen as a banking function of the nation's central bank: commitments to pay interest on dollar savings. The point would just be to encourage savings (if necessary), to regulate demand, to regulate interest rates, and to give people an additional reason to accept and hold dollars.

The public debate would shift away from debt sustainability and solvency toward price stability and full employment of people and resources. And reforming the central bank in this way would help move us back to the sensible use of fiscal policy for macroeconomic management, and away from our monetarist over-reliance on open market operations and the supply side.